How Much More Expensive Is It To Have A Bad Credit Score?

Most people know that having a less-than-perfect credit score makes it more difficult to get a loan. And for those who can manage to be approved for a loan or new credit card, it also means they will end up with higher payments.

The folks at SmartMoney broke down the negative impact of low credit scores by the three main lines of consumer credit — car loans, credit cards, and mortgages.

For car loans, someone with a credit score of between 680 and 739 will likely pay 4.5% APR on their loans, compared to only 3.2% for people with scores above the 740 threshold. Meanwhile, people with sub-680 scores can pay anywhere from 6.5% to 12.9% APR for the same loan.

Over the course of a five-year loan for $10,000, that 4.5% interest rate results in an extra $5.85/month on the monthly payment and about $351 more over the life of the loan.

That may not be too huge a difference, but for people at the top end of the subprime auto loan market will pay an additional $46/month, which adds up to an additional $2760 over the five years.

This might be of little concern to you, but sub-680 auto loans make up nearly half of new car loans, so that means there are a lot of people out there paying oodles of extra interest.

When it comes to credit cards, the difference is even more pronounced. Card holders with scores above 720 pay 12.9% APR on average, but those with scores ranging from 660 to 719 pay 17.1%. For people with scores between 620 and 659, that average is 20.3%.

So if you have two people each paying down a $5,000 credit card bill at $150/month, the person with 12.9% APR pays $1,235 in interest while the person with 20.3% APR will pay almost double that — $2,421 — in interest.

And then there are mortgages, where getting approved for a loan with tarnished credit is a huge hurdle. But for comparison’s sake, SmartMoney provides this example:

Borrowers who have FICO scores of at least 760, make a 20% down payment, have a $300,000, 30-year mortgage, and pay one point upfront (that equals one percentage of the mortgage amount) will have average annual percentage rate of 3.3% or about $1,311 per month, according to Informa Research Services. On the other end of the spectrum, those with 620 to 639 scores – if they can get approved — will pay 4.9% on average or $1,587 per month – and annually will pay $3,312 extra per year.